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Different time frames, different scales

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Yesterday on PremierMarkets.com I stated that I wasn't going to be doing much trading today as I expected a lot of volatility and didn't want to get swung around on trades. It's one thing to trade on my own and manage things, but when you're only able to give updates on an hourly or every couple of hours to traders, too much can happen in a 15-minute time frame for those that aren't watching the hot list. One of these days, I'll implement a short-term trade and we'll trade 1,000 shares of a $50 stock and see if we can't capture $1 or $2 in a 15-minute time frame. For now, lets take a look at the 30-year YIELD and get a big picture perspective of the bond market. I think you'll find this most interesting. Especially if you've began to understand how important the bond market is as it relates to stocks.

30-year YIELD chart - 0.50 box scale

Since I'm not doing a lot of trading today, I'm looking at the bond market to really try and get some different perspectives on things. One thing I was doing was looking at the 30-year YIELD. I usually look at it with a 0.25 scale, but that scale right now isn't of much help. So, I changed by box scale to 0.50 to remove some noise and look what I found. What I see above is how the bearish resistance on YIELD (red +) acted very much like resistance back in May of 2000. Subscribers have heard me say "the first test of bearish resistance is often times most painful for the bulls." Well in this case, YIELD resistance was actually bullish for bond traders, but it was painful for bullish stock traders. With the 0.50 box scale, I am now at least aware that the 30-year YIELD has made a major move higher, but is now right at its bearish resistance line one again. Eventually this line will get broken, but operating on this scale tells me I shouldn't be overly bullish for stocks at this point. I can perhaps test this "theory" by also looking at the bullish support trend (blue +) and ask myself if it would have been good to turn bearish for stocks back in March of 2000 (red 3) when the bullish support trend was broken to the downside. Just to be fair, I'll quote the low for March of 2000 on the NASDAQ Composite. The Low for March of 2000 was 4,553. On the above YIELD chart, it would take a trade at 5.850% YIELD to break bearish resistance. Good level to set an alert at. Current YIELD on 30-year is 5.786%.

Jeff Bailey
Senior Market Technician

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